Minimum Wage

Microeconomic theory is concerned with the question of economic choices made by firms, households, and individuals.1Microeconomics is the study of tradeoffs, of opportunity costs, of substitution, of transformation, and of choosing between alternatives.2

Within the context of microeconomic theory, the theory of the firm is highly relevant to the consideration of arguments favoring an increase in the level of the minimum wage. The traditional concept of the theory of the firm holds that private sector firms seek to maximize profits.3 Some contemporary

1E. V. Bowden, Economics: The Science of Common Sense, 5thed. (Cincinnati: SouthWestern Publishing Co., 1989), 95.

3R. A. McCain, Microeconomic Theory (New York: McGraw Hill Book Company, 1982), 107.

2microeconomic theory, however, contends that private sector firms may seek to maximize something other than profits, such as gross revenue, revenue growth, or some form of utility.4

Another relatively recent development is the behavioral theory of the firm, which rejects the idea that firms attempt to maximize anything.5 The behavioral theory of the f

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oyment. Further, almost half of the total employment in the United States continues to be provided by small business firms. The international competitiveness of American industry has suffered over the past 50 years; however, no one has suggested that American industrial wages should be reduced to minimum wage levels. Since its inception in the United States in 1938, the nominal minimum wage has risen to a level more than fifteen times the initial 25 cent per hour level. In real terms, however, using the implicit deflator for the gross national product, the level of the minimum wage in 1990 is only 1.7 times greater than the 1938 level, while the real per capita gross national product (GNP) has increased by 80.5 times.10 __________ 8Council of Economic Advisers, Economic Report of the President (Washington: United States Government Printing Office, 1980), 234. 9Council of Economic Advisers, Economic Indicators (Washington: United States Government Printing Office, 1990), 12. 10F. Mackenzie, "A Positive Perspective on the Social Responsibilities of Business and Industry. Economic Intelligence Report, April 1990, 137178. 5 These data do not paint a picture of the minimum wage as the culprit which ha
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Approximate Word count = 1758
Approximate Pages = 7 (250 words per page)

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